Mortgage Pricing: Some Provisional Empirical Results

Michael O'Keefe and Robert Van Order

Real Estate Economics, 1990, vol. 18, issue 3, 313-322

Abstract: We test some of the qualitative properties of mortgage pricing models. The models use option pricing techniques, focusing on prepayment as a call option. They imply a quite nonlinear relationship between mortgage price and coupon, interest rates and volatility. We test for both the first and second derivatives of the effects of these variables using data on Ginnie Mae mortgage backed securities. We find that the model is largely supported by the data.

Date: 1990
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